Few firm owners seem to fully understand what “scaling” a business really means, and for the most part, it isn’t their fault.
For instance, when you Google the term, there are varying definitions; most, if not all, don’t really apply to small, professional service businesses, such as independent advisory firms. They apply mostly to product-based businesses, those that sell, say technology, not advice.
That doesn’t mean “scaling” isn’t important to independent advisory firms. The term just needs to be reinterpreted to address the different needs of service businesses.
Simply put, “scaling” in the independent advisory world is the idea of increasing revenues without increasing overhead, thus boosting profitability. For an advisory businesses, the goal of “scaling” is to set the stage for growth — increasing clients, services and staff — while, at the same time, continuing to increase the bottom line.
The good news is, in smaller businesses such as advisory firms, the impediments to increasing profitability are far fewer than in many other enterprises and are more easily managed if you know where to look.
In fact, the all-too-common erosion of profits in growing advisory firms almost always stems from a single problem — and thus it has a single solution.
Many firm owners cite increased technology as the solution to scaling and productivity problems.
Tech may be a solution for large businesses, but for smaller firms like those led by advisors, the high — and growing — costs of technology and its training and maintenance more often than not serves to further erode an advisory firm’s bottom line.
Instead, I’ve found that an increased focus on client communication can be far less costly and far more effective. Most advisory firm owners and their advisors aren’t setting client expectations and boundaries, which results in a loss of cost control on their services.
The real problem is they often “over service” clients — and will even add more costly, time-consuming, services when asked by the client. As a result, adding more clients can actually cause more damage to a firm’s bottom line.
To gain control of the costs of services, firm owners and senior advisors must have a clear understanding of what they will and won’t do for their clients
This entails clearly defining what your firm should and shouldn’t provide. Next, that needs to be communicated it effectively to clients in order to set expectations about what you will and won’t do, and how you will do it.
Setting client expectations at the beginning of every engagement has many benefits, some unexpected. For instance, these rules of engagement help establish mutual respect; you’re being honest with them, so they tend to be honest with you.
It also demonstrates that you’re serious about what you do for them. Additionally, it will drive off the “problem” clients who tend to demand more than their fair share of your firm’s time.
Equally important, this setting of boundaries gives you control over the scaling of your firm; when you know exactly what you are providing, you can usually figure out how to do it efficiently. The work load is more manageable — and clients tend to call in far less frequently.
What’s more, when your business is starting to “scale” — running more efficiently and predictably — you should have a lot less work to do, and more time (and contentment) to focus on what really needs to be done to grow your business.
We find that firm owners often find they have way more free time and much less stress after taking these steps. And owners and advisors tend to feel much better about their time in the office — and their lives out of the office.
There’s virtually is no downside to effectively scaling your advisory business through great communication with your clients. If you start with client communication, you will find that the technology cost to enhance communication will be less than expected — because you won’t need it as much.
Remember, financial services is a professional services business. All you really need to provide great service is great advice.
If you focus on providing great advice by increasing your communication with clients first, you will be way ahead of your competition, regardless of what technology you have.
Angie Herbers is Managing Director and Senior Consultant at Herbers & Company, an independent growth consultancy for financial advisory firms. She can be reached at firstname.lastname@example.org.